Intranational Trade and Regional Tax Rates: A Welfare Analysis on the U.S. Economy

Abstract:     
This paper analyzes the effects of personal tax rates on macroeconomic variables at regional and national levels through a general equilibrium trade model with private and public sectors, migrating individuals, intermediate inputs and final goods trade, and an analytical solution. The regional model can explain state-level variables in the U.S. almost perfectly. The counterfactuals on the U.S. economy suggest that a nationwide increase in the state-level dividend-income tax rates would be the best option to expand the private sector, tax revenues, and, most importantly, the individual welfare in all states; a nationwide increase in the state-level wage-income tax rates would hurt the economy in all states; property and sales taxes have fewer effects on the U.S. economy. The results are mainly driven by intermediate input trade.

Number of Pages in PDF File: 54

Keywords: Regional Taxes, Trade, Public Sector, Private Sector, US

JEL Classification: H24, H71, R12, R13, R32

working papers series